A corruption of the word "Owned." This originated in an online game called Warcraft, where a map designer misspelled "owned." When the computer beat a player, it was supposed to say, so-and-so "has been owned."

Instead, it said, so-and-so "has been pwned."

It basically means "to own" or to be dominated by an opponent or situation, especially by some god-like or computer-like force.

"Man, I rock at my job, but I still got a bad evaluation. I was pwned."